Chapter 14 Accounting for a Merchandising Business.

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Presentation transcript:

Chapter 14 Accounting for a Merchandising Business

Merchandising Business Most merchandising businesses operate as either Retailers or Wholesalers. A retailer is a business that sells to the final user. A wholesaler is a business that sells to the retailers These sales are either cash or credit. The collection of cash from sales enables businesses to purchase more items to sell, pay expenses, and make a profit.

Operating Cycle of a Merchandising Business Recall that the Accounting Cycle is a series of tasks performed in a single period to maintain accurate records. Open your books to page 380. Choose a Smart Art Graphic in Word to recreate Figure Print for credit. You can also use the shapes feature to recreate the diagram or draw by hand.

Critical Thinking Open your books to page 381. Use the Chart of Accounts for On Your Mark to answer the following: 1. What is the difference between Owner’s Equity and Stockholder’s Equity? 2. What are the two sources of Revenue for “On Your Mark”? 3. What do you think Account 405 is used for?

Answers to Critical Thinking 1. Owner’s Equity represents the financial claims of one individual in a sole proprietorship. Stockholder’s equity represents financial claims of all corporate stockholders. 2. Sales and Interest Income 3. To record the amount of discounts the company gives.

Accounts used by Merchandising Businesses Merchandise Inventory – the inventory of goods bought for resale. Also known as: goods, wares, salables, and consumer goods  Asset Account; Increases are recorded as debits; Normal balance is a debit Sales Account – Revenue account of a Merchandising Business  Revenue Account; Both cash and credit sales are increases and recorded as credits; Normal balance is a credit  Credit sales affect Accounts Receivable (Debit)  Cash sales also affect Cash in Bank (Debit)

Critical Thinking 1.What does the balance of the Merchandising Inventory show? 2.What does the balance of the Sales Account show? Answers: 1.The amount of merchandise in stock available for sale at the beginning of the period. 2.The amount of merchandise that has been sold.

Assignment Page 381; Reinforce the Main Idea Do the Math Problem 14-1 (Working Papers) Check Answers